Money Demand Function: A Not-So-Fond Farewell in the Light of Financial Development

This study investigates the stability issues of real money balances considering financial development. We estimate narrow (M1) and broad (M3) demand in India during post-financial reform, from 1996:Q2 to 2016:Q3. To check short- long-run relationships, this uses autoregressive distributed lag model cointegration other various time series techniques. After incorporating development into demand, we determined relationships a well-defined open-economy stable specification (M1 M3) India. Having established function, policymaker central bankers can use monetary aggregates as an indicator or information variable predict output gaps inflationary expectations under inflation-targeting framework.